The GSM Association is claiming that Europe’s mobile industry is cutting back spending on new networks and services as a growing regulatory burden from the European Union puts profitability under pressure.
The European Commission, however, has asserted that mobile operators are making excessive profits and has imposed retail price caps on the industry.
This is refuted by the GSMA – using data from management consultancy AT Kearney – which argues that the European mobile industry’s return on capital employed (ROCE) was just 9 per cent in 2006 compared with more than 20 per cent in software, pharmaceuticals and several other sectors.
In its response to the European Commission’s public consultation on the voice roaming regulation, the GSMA is warning that European mobile operators, on average, are only just covering their weighted cost of capital and some of them are making an economic loss.
AT Kearney figures estimate that ROCE for the mobile industry in 2007 was equal to or slightly lower than the 2006 figure.
The GSMA is also saying that the European Commission’s belief that regulated price caps on voice roaming calls introduced last summer would lead to a major increase in usage – and so offset possible revenue losses of operators – has not materialised.
AT Kearney calculates that voice roaming call volumes have increased by only 11 per cent year-on-year to July 2008 while operators’ voice roaming revenues have decreased by 26 per cent.
According to the GSMA, heavy capital investment is needed to ensure the widespread availability of advanced 3G networks, which enable mobile users to access the Internet and other multimedia services at broadband speeds.
The EU mobile industry’s capital spending has slipped from 13 per cent of revenue in 2005 to 12 per cent in 2006 to 11 per cent in 2007.
The operator’s body says that while the mobile industry’s technology roadmap envisages further dramatic improvements in network performance and capacity, the speed of deployment of new networks may be constrained by the mobile industry’s relatively low level of profitability.
Tom Phillips, chief government and regulatory affairs officer of the GSMA, said Europe’s mobile industry was in the midst of another major investment cycle to deploy new services, such as mobile broadband, video downloads, mobile television and mobile email.
“However, it is clear that the high level of investment required to provide these services across Europe won’t happen if regulators continue to distort the market by setting prices,” he said.
Following recent announcements by individual operators suggesting average prices will continue to fall, the GSMA says there is no need for the European Commission to also introduce price caps on these services.